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  • Locum Only with S-Corp Working Multiple States

    Hi all,

    Recently finished fellowship and working purely locum for the next few years. I'll be working multiple states from VA, MD, WA, HI, CA, MA and possibly more. My expected gross income will be between $450-500k. I'm currently in the market for a CPA and I've been researching multiple physician-only and/or locum emphasized CPAs. It's hard to pin down what is a reasonable monthly cost since I'm expecting it will be beneficial to actually do some year round tax strategizing and planning vs once a year tax filing alone. The rates I'm seeing are ranging anywhere from $150 a month to $500 a month and I don't know what's reasonable or what services I absolutely need in my situation (bookkeeping, payroll, etc). For people in my situation or similar, what monthly rate are you paying your CPA? What services do you receive from them? After a year of tax planning, is it necessary to continue tax planning indefinitely or is it good for the first year or two?

    There's a lot of questions in there, but if I could get some feedback from the braintrust, I'd be much obliged!

  • #2
    This question comes up from time to time. Are you basing your decision solely upon cost? Usually not a good idea - speaking from experience and talking to many physicians who have paid far lower than we would have charged, the value received far outweighs the cost factor in the decision. Services from CPA firms are not fungible. That said, I’ll sit back and hope others will chime in and I wish you good luck in finding the number you are seeking!
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3
      I don’t think there’s as much tax strategizing or planning as you think there will be

      you work, make money, save money, record income expenses, run payroll, start a 401k. Make sure you have all the insurance you need. Run health and HSA through the Corp

      the main decision point will be how much salary vs distributions if you’re running an S Corp

      main question around CPA cost. Will you file multiple state returns? Yes or no changes things a lot

      if CPA is doing your bookkeeping and payroll and quarterly filings and personal and Corp returns I wildly guess $2-5k per year. Higher end if multiple state returns

      Comment


      • #4
        Originally posted by jfoxcpacfp View Post
        This question comes up from time to time. Are you basing your decision solely upon cost? Usually not a good idea - speaking from experience and talking to many physicians who have paid far lower than we would have charged, the value received far outweighs the cost factor in the decision. Services from CPA firms are not fungible. That said, I’ll sit back and hope others will chime in and I wish you good luck in finding the number you are seeking!
        Thanks! I'm not necessarily looking for a number, per se. I'm mostly trying to figure out what is reasonable or 'standard' for my situation. I mentioned the $500 rate I was quoted to a fellow physician and they spit out their coffee. I just don't have a baseline to know how to value what people are offering. Like what should my expectations be for a $500 a month CPA vs a $150 a month CPA. I'm happy to pay for something I need, but I definitely don't want to overpay for something I don't.

        Comment


        • #5
          Originally posted by jacoavlu View Post
          I don’t think there’s as much tax strategizing or planning as you think there will be

          you work, make money, save money, record income expenses, run payroll, start a 401k. Make sure you have all the insurance you need. Run health and HSA through the Corp

          the main decision point will be how much salary vs distributions if you’re running an S Corp

          main question around CPA cost. Will you file multiple state returns? Yes or no changes things a lot

          if CPA is doing your bookkeeping and payroll and quarterly filings and personal and Corp returns I wildly guess $2-5k per year. Higher end if multiple state returns
          Yeah, I need to talk to CPA about distribution. I remember reading a post by WCI (I believe) that said best distribution rate was something like 28.6%, but that was a couple of years ago. I don't know how involved doing one's own bookkeeping and payroll would be since I'm the only employee. But, I will have to to multiple states perhaps 3-5.

          Comment


          • #6
            Originally posted by jacoavlu View Post
            I don’t think there’s as much tax strategizing or planning as you think there will be

            you work, make money, save money, record income expenses, run payroll, start a 401k. Make sure you have all the insurance you need. Run health and HSA through the Corp

            the main decision point will be how much salary vs distributions if you’re running an S Corp

            main question around CPA cost. Will you file multiple state returns? Yes or no changes things a lot

            if CPA is doing your bookkeeping and payroll and quarterly filings and personal and Corp returns I wildly guess $2-5k per year. Higher end if multiple state returns
            Much depends upon how much of the bookkeeping and assistance you need or want.
            Start up needs to be separated from continuing support. Starting from scratch might leave you spinning your wheels and a little bit of startup training might be worth it.

            Comment


            • #7
              Originally posted by bilboquet View Post
              I remember reading a post by WCI (I believe) that said best distribution rate was something like 28.6%, but that was a couple of years ago.
              I have no idea what you read, but I guarantee you that there is no way 28.6% is remotely a reasonable distribution rate for you.

              28.6% might be reasonable for WCI, because a significant majority of his revenue comes from this website and other sources not based on his personal services. In your case, all of your revenue comes from personal services.

              From the IRS:

              To the extent gross receipts are generated by the shareholder's personal services, then payments to the shareholder-employee should be classified as wages that are subject to employment taxes.

              Someone doing locums starts with the presumption that reasonable compensation should be 100% of net business profits. Then there are several factors based on facts and circumstances that can lower that.

              The IRS and all of the court cases over the last ten (10) years have considered the single most important factor to be what someone with your knowledge skills and experience would receive in W-2 salary if employed performing the same tasks.

              Comment


              • #8
                Originally posted by spiritrider View Post
                I have no idea what you read, but I guarantee you that there is no way 28.6% is remotely a reasonable distribution rate for you.

                28.6% might be reasonable for WCI, because a significant majority of his revenue comes from this website and other sources not based on his personal services. In your case, all of your revenue comes from personal services.

                From the IRS:

                To the extent gross receipts are generated by the shareholder's personal services, then payments to the shareholder-employee should be classified as wages that are subject to employment taxes.

                Someone doing locums starts with the presumption that reasonable compensation should be 100% of net business profits. Then there are several factors based on facts and circumstances that can lower that.

                The IRS and all of the court cases over the last ten (10) years have considered the single most important factor to be what someone with your knowledge skills and experience would receive in W-2 salary if employed performing the same tasks.
                Maybe I'm misreading what he wrote. He adds the caveat that this has to be "reasonable compensation" in the next sentence. spiritrider - you were actually quoted at the top of the article (but for a different part of the article). Here's the link to what I read. It's down in the section titled How Do You Balance Salary, Medicare Tax, and the 199A Deduction As An S Corp?

                Comment


                • #9
                  Originally posted by Tim View Post

                  Much depends upon how much of the bookkeeping and assistance you need or want.
                  Start up needs to be separated from continuing support. Starting from scratch might leave you spinning your wheels and a little bit of startup training might be worth it.
                  Yeah, this is kinda what I figured. It sounds like for tax counseling in the first couple of years, bookkeeping, payroll would be worth anywhere between $2,000-$6,000 a year?

                  Comment


                  • #10
                    Originally posted by bilboquet View Post

                    Maybe I'm misreading what he wrote. He adds the caveat that this has to be "reasonable compensation" in the next sentence. spiritrider - you were actually quoted at the top of the article (but for a different part of the article). Here's the link to what I read. It's down in the section titled How Do You Balance Salary, Medicare Tax, and the 199A Deduction As An S Corp?
                    You have somewhat taken that out of context (although you corrected yourself right afterward). To clarify, WCI is calculating what he considers the ideal rate of pay to optimize the 199a deduction (I believe, have read only that section), but he follows with "Again, I want to emphasize this has to be reasonable compensation for what you do and you probably want it to be enough to max out your retirement accounts." So, 2 different concepts.
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      Mea Culpa.

                      Talk about going way off in left field with a reading comprehension failure. My response was based on thinking you were talking about 28.6% reasonable compensation and not distributions.

                      WCI is correct. There is a very narrow window where it may make sense to increase your S-Corp 2% shareholder-employee's compensation:
                      • Your marginal tax bracket is a minimum of 22% x 20% = 4.4%+ effective QBI tax savings.
                      • Your W-2 SS wages are already > the SS MTE (2020 = $137,700, 2021 = $142,800). Your 2.9% FICA + 0.9% Medicare surtax (if applicable) will be lower.
                      • Your taxable income makes you eligible for the QBI deduction.
                      • Your distributions are > 50% of your W-2 wages.
                      This is because your QBI is limited to 50% of your W-2 wages. As you raise your W-2 wages, yes your distributions decrease, but a larger amount of them qualify for the QBI deduction. The tax savings exceed the additional FICA.
                      Oh My! You might have heard that TCJA is an acronym for "Tax Cuts and Jobs Act." It is really in practice "The CPA Jobs Act."

                      Comment


                      • #12
                        Originally posted by jfoxcpacfp View Post

                        You have somewhat taken that out of context (although you corrected yourself right afterward). To clarify, WCI is calculating what he considers the ideal rate of pay to optimize the 199a deduction (I believe, have read only that section), but he follows with "Again, I want to emphasize this has to be reasonable compensation for what you do and you probably want it to be enough to max out your retirement accounts." So, 2 different concepts.
                        Ah okay. I definitely am out of my depth when it comes to this stuff. Thanks for clarifying!

                        Comment


                        • #13
                          Originally posted by spiritrider View Post
                          Mea Culpa.

                          Talk about going way off in left field with a reading comprehension failure. My response was based on thinking you were talking about 28.6% reasonable compensation and not distributions.

                          WCI is correct. There is a very narrow window where it may make sense to increase your S-Corp 2% shareholder-employee's compensation:
                          • Your marginal tax bracket is a minimum of 22% x 20% = 4.4%+ effective QBI tax savings.
                          • Your W-2 SS wages are already > the SS MTE (2020 = $137,700, 2021 = $142,800). Your 2.9% FICA + 0.9% Medicare surtax (if applicable) will be lower.
                          • Your taxable income makes you eligible for the QBI deduction.
                          • Your distributions are > 50% of your W-2 wages.
                          This is because your QBI is limited to 50% of your W-2 wages. As you raise your W-2 wages, yes your distributions decrease, but a larger amount of them qualify for the QBI deduction. The tax savings exceed the additional FICA.
                          Oh My! You might have heard that TCJA is an acronym for "Tax Cuts and Jobs Act." It is really in practice "The CPA Jobs Act."
                          This makes a lot of sense. Thanks for breaking it down! I can see why some would call it the CPA Jobs Act, because it feels like I'd have to get another degree to understand all the nuances and the fact that tax laws change periodically makes it feel like it would be impossible to keep up with the changes as a full time worker in any field! Any thoughts on my original question vis a vis what is a 'reasonable' monthly fee to a CPA in my situation (solo locum physician working in 3-4 states with expected gross income between $450-500k)? I can see that no matter what, this is probably a field that I'm definitely going to need a competent CPA, just don't want to overspend and not sure what overspending even looks like.

                          Comment


                          • #14
                            Originally posted by jfoxcpacfp View Post
                            This question comes up from time to time. Are you basing your decision solely upon cost? Usually not a good idea - speaking from experience and talking to many physicians who have paid far lower than we would have charged, the value received far outweighs the cost factor in the decision. Services from CPA firms are not fungible. That said, I’ll sit back and hope others will chime in and I wish you good luck in finding the number you are seeking!
                            +1
                            The tax issues are not really common. Good luck with making your choices.

                            Comment

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